http://dx.doi.org/10.30585/jrems.v1i3.346 © 2019 the Authors. Production and hosting by Avicenna FZ LLC. on behalf of Dubai Business School, University of Dubai, UAE. This is an open-access article under the CC BY 4.0 license (https://creativecommons.org/licenses/by/4.0/). Page | 1 Journal of Research in Emerging Markets JREM, 2019, Vol. 1, No. 3, ISSN: 2663-905X Available online at http://publications.ud.ac.ae/index.php/jrems The (lack of) momentum effect in the UAE stock market Mateusz Mikutowski a *, Marina Arnaut b , Adam Zaremba a,b a Department of Investment and Capital Markets, Faculty of Management, Poznań University of Economics and Business, Poland, mateusz.mikutowski@ue.poznan.pl, adam.zaremba@ue.poznan.pl. b Dubai Business School, University of Dubai, Dubai, Academic City, P.O. Box 14143, Dubai, United Arab Emirates, marnaut@ud.ac.ae, azaremba@ud.ac.ae *Corresponding author. Received: 27 June 2019, revised: 5 July 2019, accepted: 5 July 2019, published: 9 July 2019. ABSTRACT We investigate the momentum effect in the United Arab Emirates equity returns. Using a dataset of 124 firms listed in the UAE stock markets in the period January 2004 – March 2019, we form portfolios from one-way sorts on past returns ranging from 3 to 12 months. Contrary to the evidence from global markets, we have found that the momentum effect in the UAE is weak, unreliable, and insignificant. Under realistic trading assumptions, the momentum strategies cannot outperform a diversified market portfolio. Keywords: stock market, asset pricing, equity anomalies, momentum effect, return predictability, United Arab Emirates, UAE, emerging markets. JEL codes: G11, G12, G14 1. INTRODUCTION The momentum effect is one of the simplest and best-known asset pricing anomalies. It can be summarized as a tendency of assets with good (bad) past performance to continue to overperform (underperform) in the future. The classical version of the momentum effect is the relative momentum, that originates from the study of Jegadeesh and Titman (1995). The relative momentum is easy to implement because it simply assumes ranking assets based on their past returns and buying (selling) past winners (losers). Further, the strategy could be improved in many ways, by considering, e.g., alternative holding or sorting periods. Trend following approach has been discussed in the finance literature since the beginning of the 19 th century (Wyckoff, 1924; Seamans, 1939). As momentum is one of best known as asset pricing anomalies; it has been investigated on almost every type of market: in the U.S. stock market (Fama and French, 2008), in other developed countries (Rouwenhorst 1998; Chan et al. 2000; Griffin et al. 2005), in emerging markets (Rouwenhorst 1999), and in frontier markets (de Groot et al. 2012). It has been also investigated on almost every type of asset besides equities, including government bonds (Luu & Yu, 2012; Zaremba &Schabek, 2017), corporate bonds (Gebhardt et al., 2005; Jostova et al., 2013; Lin et al., 2017), interest rates (Durham, 2013), currencies (Menkoff et al., 2011; Orlov, 2015), commodities (Szymanowska et al., 2014; Zaremba et al. 2019), equity indices (Zaremba, Umutlu, & Maydybura, 2018), and real estate (Feng et al., 2014; Moss et al., 2015). The major aim of this study is to examine the existence and performance of the momentum effect in the UAE stock market. Contrary to prevalent evidence from developed and emerging markets, we do not find evidence supporting any significant momentum effect. Regardless of the portfolio formation periods or the size of the companies in the sample, the difference in average returns between past winners and losers is insignificant. This study adds to the literature on equity anomalies in the UAE (Alshebli 2019; Al-Kahazali, 2008; Al-Hajieh et al., 2011; Al-Tamimi et al., 2011; Chiang & Zheng, 2010; Medhioub & Chaffai, 2018; Mikutowki, Kambouris, & Zaremba, 2019; Moustafa, 2004; Szczygielski, Mikutowski, & Zaremba, 2019; Zaremba, 2019). The remainder of the study proceeds as follows. Section 2 presents the data. Section 3 discusses the methods employed. Section 4 demonstrates the findings. Finally, Section 5 concludes the paper.